8 May 2024

Lack of demand now 'number one problem for businesses' - investment manager

4:43 pm on 8 May 2024
Family vacation trip, leisurely travel in motor home, Happy Holiday Vacation in Caravan camping car. Beautiful Nature New Zealand natural landscape Scenic route with camper van in New Zealand.

Tourism initially appeared to be amongst the few bright spots in the economy, but it has not been immune from recent challenges either, a commentator says. Photo: 123RF

The new economic reality has hit a growing number of companies as they reveal significant hits to their earnings and profits.

Just this week, Spark and Tourism Holdings cut their earnings guidance, with both companies citing softening demand.

Earlier, Air New Zealand lowered its guidance because of a softening domestic market and PGG Wrightson cut its expectations because of tougher times on the farm.

There have also been downgrades from 2 Cheap Cars and Metro Performance Glass - all of which pointed to a weaker full-year reporting season.

Matt Peek - Fisher Funds portfolio manager Matt Peek

Matt Peek Photo: Supplied / Fisher Funds

Fisher Funds portfolio manager Matt Peek said the weak domestic economy had started to bite companies hard.

"If I think back to the February reporting season, what we saw there was the outlook for companies' profitability falling, and that was driven both on the cost and on the revenue side," Peek said.

"If I think to what I've seen recently, there have been multiple business surveys which are now suggesting that as well as the cost inflation [and] high pressures that we've had in the last year or so, a lack of demand is an increasing problem and is now the number one problem for businesses."

Peek said tourism initially appeared to be amongst the few bright spots in the economy, but it has not been immune either.

"Tourism was expected to hold up a bit better, but I guess it's still a relatively chunky item [expense] for people.

"So when we see Air New Zealand calling out domestic tourism ... and Tourism Holdings seeing softness there - we should sort of prick up our ears and take notice."

Peek said more earnings downgrades were likely in the coming weeks.

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